eBusiness Weekly
Business Writer
Lafarge released a weak set of results where revenue declined by 13 percent to $23,1 million. In a statement accompanying the results, management lamented over the heavy rainfall in the first quarter of the year which was a drawback for their industry. Some construction projects were delayed which resulted in restrained sales. Key stockists were also de-stocking on cement to minimise the risk associated with moisture level degradation and cement shelf life concerns on very slow moving stock.
Cost of sales reduced from prior year following normalisation of the plant operations after the upgrade of the environmental control unit. It eliminated a significant portion of inbound logistics costs related to input costs during the downtime period. Normalised gross profit was up to $11,91 million from $6,48 million the prior year. Distribution cost increased due to economic factors and as a result loss before interest and tax increased to $1,62 million from a loss of $1,55 million in 2016.
There was an improvement in cash generated from operations from$2,3 million in 2016 to $4,1 million in 2017. Current assets were up 5 percent due to inventory accumulation in anticipation of the approaching peak period. There was a corresponding 5 percent increase in current liabilities due to growth in trade and other payables. The company has overdraft facilities to the tune of $0,7 million which represent less than 2 percent of equity.
Lafarge is anticipating that the company will be one of the major suppliers of cement for the Beitbridge-Chirundu road project where preparatory work is ongoing. Individual housing construction market has been noted to be resilient and is also anticipated to contribute to the growth in the second half of the year. The second half of the year is generally the peak period and growth during that season is expected to improve profitability.
Analysts Comment: Lafarge’s biggest undoing over the years was its inability to take advantage of its market strength within Harare and its environs were its operations are located. While its competitors had to make do with logistical nightmares and high costs of shipping cement into Harare from Bulawayo or Gweru, Lafarge only had to worry about operational efficiency which was also poor. But now that PPC is now in Harare, coupled with the new players in Midlands and imports, Lafarge has been the worst hit in terms of competition and will most likely not recover.
Overall, the cement market is depressed with most construction work happening around retail housing construction. However, the capacity of cement makers such as Lafarge is designed to service big commercial projects, which the country has less of. If they manage to get the contract to part supply the Beitbridge-Chirundu project, then sales volumes may improve over that period. For long term sustenance of positive sales performance for Lafarge, the economy would need to improve and more commercial projects spring up.
The cash-flow statement was too condensed to pick up the source of increase in operating cash flow. It can be assumed that there was a decline in debtors, who probably early paid their debts over the period.
Consumers are facing pressure to utilise their bank balances as a means of preserving value, and some may have opted to clear their debts. Cash purchases may have also increased, thereby reducing debtors sitting on their books. Lafarge was also quick to pass on the cash to the shareholders when it declared a belated 2016 dividend in mid-September 2017.
The need to utilise cash balances by consumers may be rifer in the second half, which is the traditional construction season in the country.
